• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

What problems have prompted countries of Eastern Europe to move towards a more market orientated economic system?

Extracts from this document...


Year 12 Economics Essay a) What problems have prompted countries of Eastern Europe to move towards a more market orientated economic system? b) What problems have these countries encountered in the transition? Economies try to solve the basic economic problem that exists in the marketplace. Scarcity of resources in a world of infinite human wants. This causes the basic economic problem; resources have to be allocated between competing uses. To solve the problem the Government has to decide what will be produced, how will it be produced and for whom will it be produced. The answers to these questions depend on what economic system a government decides to operate. Countries in Eastern Europe wanted to move towards a more mixed economy which is a combination of market economies and command economies. In a command economy resources are allocated by the Government through careful planning. This means that the four factors of production (land, labour, capital and enterprise) are all controlled by the State. In market economy the government makes no economic decisions. These are made through the market which is the interaction between consumers and businesses. In a command economy goods and services can be over or under produced because of the difficulties in estimating demand. ...read more.


There are few incentives for workers to work hard and this results in low productivity. They cannot change jobs and promotion is difficult. Once you have been given a job it is yours for life. There is also small chance of you losing your job so workers put in little effort. In addition, individuals are taxed more for higher wages so there is no incentive to work hard. Market economies allow people to choose their own jobs and live their life their own way. This leads to high motivation and high productivity. Companies and businesses also have few incentives. For example, if they reach their target production rate their reward would be to be given a higher one next year. The system is often riddled with abuses of power and privilege meaning wrong decisions are made. As command economies only work with a bureaucracy, there are many people in positions of power. These people decide what is produced and sometimes they choose what they want as there is little choice in the market. A move to a more market orientated economy means giving the consumer more choice. It would allow competition, better prices and better quality products. ...read more.


Businesses that supplied machinery or the materials required, for the production of the good would suffer too. Everything in a command economy is owned by the state. This includes all the land and capital. So when an economy is in transition some of the states assets must be sold or privatised. This can be done in three ways. The first option is the state can give the land and capital away to the people currently employing them. This option is a very arbitrary way of sharing the assets; some capital could be more efficient than others. The second option is to sell the capital to the highest bidder. This sometimes caused problems as some of the businesses had to be closed because they were unprofitable. The last option is that they can split it fairly between all the countries citizens. This is quite a successful way of sharing the assets, as shown by the Czech Republic. The problems of lack of choice, bureaucracy and too high state intervention have prompted command economies to move towards a more market-orientated system. However transition isn't easy. Inflation may rise greatly, unemployment could also increase and businesses need to be privatised. However I think in the end these times of transition are worth it, it gives freedom of choice and in the end, a more balanced economy. Sophie Bradstreet 12JCh ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. How do economic systems solve the problem of scarcity?

    However, their decisions also have many errors and plans do not always go as planned and many problems can occur. Governments can direct their resources into non-essential goods or for war, depriving their citizens from the more basic necessities. Sometimes governments can also forget some things in their plans, which can lead to big problems.

  2. What is the economic system?How does Australia's economic system attempts to solve the economic ...

    system, political system, cultural system, etc, and in that way, how a country attempts to solve the Economic Problem often relates to its other moral and political views. Australia, as a mixed economy, attempts to solve the Economic Problem by applying the same principals most mixed economies attempt to use.

  1. Assess the relative merits and demerits of a market economy. Why have each East ...

    They would also be told where it should buy its inputs. During the transition period firms had to actively seek customers whereas before they were handed to them on a platter. Also firms may have decided to import the produce from cheaper sources in the west, which they may have been forbidden to do before.

  2. Labour is one of the four factors of production along with land, capital and ...

    Economics of industry Production > The process of combining land, labour, capital, and enterprise to provide goods and services in an economy Utility > The ability of goods and services to satisfy wants. Exchange > The process of trading things of equivalent value.

  1. This report will establish the opportunities and threats presented to Sony by the EU ...

    In Sweden the taxman takes 61% of your earnings from the top rates and from the bottom rates 25% in1997. So if Sony would set up subsidiaries would have to be in United Kingdom, which they have already done because on the average we seem take less time out of

  2. Features of command economies

    All of these raise the incentive to productivity. Then the command economy changes into a mixed economy, which has those features above. In a mixed economy, the market forces play an important part. The resources are allocated both by the government through the planning mechanism, and by the private sector through the market mechanism.

  1. "Labour market inflexibility in Europe is the main reason why Europe is not as ...

    The concept of making labour markets more flexible came about in the European Commission's White Paper on "Growth, Competitiveness, and Employment" in 1994. The advent of the Euro was claimed to make labour markets more flexible. As top economist Michael Burda said, "My predication is that unless an improbable miracle

  2. Scarcity and Unlimited Wants.

    Advantages of the Division of Labour The division of labour raises output, thereby reducing costs per unit, for the following reasons: * Workers become more practised at the task * Workers are able to be trained more precisely for the task * Specialisation enables more efficient organisation of production with

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work